Image: The usurers, Marinus van Reymerswaele (1490 – 1567). Firenze, Museo Stibbert.
As European leaders meet today in a desperate attempt to prevent a colossal euro collapse, a look back at history shows that we have learned little from the past.
Excessive debt accumulation, structural weakness and poor management were responsible for economic crashes and collapses since the medieval invention of banking by the Italians, who came up with the deposit account, double entry bookkeeping and the line of credit.
“The word bank comes from the Italian, named after the ‘banco’ or bench on which merchants traded. And bankrupt originates from the practice of breaking the bench of an insolvent banker,” said art historian Ludovica Sebregondi, co-curator of “Money and Beauty,” a perfectly timed exhibition which runs in Florence until January 22.
The exhibition also shows that words such as bankrupt and risk were pronounced in Italy centuries before the Occupy Wall Street movement took hold.
Three powerful 14th century Florentine banks, the Bardi, Peruzzi and Acciaiuoli, collapsed in the 1340s.
Some 150 years later, the Medici Bank, the most powerful financial institution in 15th-century Europe, suffered the same fate.
The reason for the collapse? They overextended their loans to sovereigns who had embarked on disastrous military enterprises.
The loans were granted by disgraceful bank managers who, in order to make themselves “important,” as Lorenzo the Magnificent bitterly remarked, did not care about business integrity.
Founded in 1397 by Giovanni di Bicci (c.1360 –1429), from the powerful Medici family who ruled Florence for almost 400 years, the bank was built on the model of modern holding companies.
In its heyday, under the rule of Cosimo (1389–1464), the bank was Florence’s most important patron of the arts and had branches in Geneva, Bruges, London, Avignon, Rome, Venice, Ancona, Pisa, and Milan.
The Image: the Florence’s florin, the ancestor of the euro. It featured the lily of Florence on one side and St John the Baptist on the other. Firenze, Museo Nazionale del Bargello
There, the Florence’s florin, arguably the ancestor of the euro, dominated. Minted in 1252, it contained 3.53 grams of 24 carat gold. At today’s gold prices, it would have been valued at about $150.
But all that glitters is not gold. After Cosimo’s death in 1464, poor bank management, a blindness to risk, short-term thinking and personal greed caused a slow, but steady descent that led the Medici Bank to an inglorious end.
“Cosimo ruled his branch managers with a firm hand, but his successors relaxed their grip, with disastrous consequences,” the late Raymond De Roover, a Harvard historian, wrote in his 1963 classic “The Rise and Decline of the Medici Bank (1397-1494).”
Irresponsible managers became overexposed with loans, and problems began to emerge. Branches burdened with debts began falling like dominoes.
When the Medici clan was thrown out of Florence in 1494, the Bank was virtually in a state of bankruptcy. In the same year, all the branches were dissolved.
The story of what might be considered the first international debt crisis bears haunting similarities with today’s crisis, yet a somber difference remains between the 15th century and today.
Florentine bankers — unlike CEOs such as Richard Fuld of the bankrupt Lehman Brothers, or Royal Bank of Scotland’s Fred Goodwin — felt guilty over their behavior.
Money lending was officially proscribed by the Church. And so, to absolve themselves of the sin of usury, the guilt-ridden bankers poured money into religious art and architecture.
Most of the artworks and buildings tourists admire in Florence today, were commissioned by those 15th century bankers, constantly worried about their salvation.
Unfortunately, 21st century bankers who have earned a fortune while investors suffered don’t seem as concerned for their immortal souls.